Central London Property Trust Ltd v High Trees Ltd - Assignment Example

Legal Case Study Introduction English contract law stipulates the necessity of consideration if an informal promise is to be enforced. In other words, consideration is the price of the promise at the implicit or explicit request of the promisor. In this regard, it is insufficient that the promisee had relied on the promise. This holds good, even in situations, wherein the promisor had intended the promisee to rely upon the promise or could have anticipated that the promisee would rely upon it. However, the doctrine of promissory estoppel has its limitations (Cartwright, 2006). This highlights the important fact that an individual is not estopped from breaking his promise, merely because the promisee had relied upon the promise to his detriment. In the case of Central London Property Trust Ltd v High Trees Ltd, Lord Denning made an obiter dictum, which established the doctrine of promissory estoppel. This doctrine was based on the ruling in Hughes v Metropolitan Railway (Poole, 2012, p. 145). In addition, the doctrine of promissory estoppel was subsequently affirmed by their Lordships in their decision in Tool Metal Manufacturing v Tungsten. Promissory estoppel constitutes an equitable doctrine that on occasion can preclude an individual from breaking a promise that is not supported by consideration (Stone, 2005, p. 35). The London Panharmonic Symphony Orchestra had hired Potluck Builders to renovate and refurbish its monumental hall. The cost envisaged for this project was £4,000,000. In addition, it was stipulated that the work was to be completed within eight months, as a symbolic symphonic extravaganza was to be conducted. This event was being planned to felicitate Her Majesty Queen Elizabeth II. In order to ensure the prompt conclusion of the work and to impress upon Potluck Builders the necessity for adhering to the time schedule, a penalty clause was inserted. As a consequence, £40,000 was to be deducted per week from the agreed upon price, if the work was not completed in time. In our present problem, Potluck was pleased with the work done by Johnson and agreed to pay the latter £20,000 and provide him with a case of Cristal champagne, a bicycle and two tickets to the Royal Gala concert. After the event, Potluck refused to pay Johnson the agreed upon amount of £20,000. Similarly, he refused to pay Klara the additional amount of £30,000, which she had demanded for completing her work under the contract. For assessing the liabilities of Potluck towards Klara and Johnson, the following issues need to be considered. If Johnson sues Potluck for the non – payment of the amounts agreed upon then Potluck will be the defendant and Johnson the claimant. In case Klara sues Potluck for her amounts, Klara will become the claimant and Potluck will become the defendant. In general, civil justice in the UK is addressed by the County courts, and if the case involves greater complexity, then the High Court takes over the case (Judicial Office, 2013). In our problem, County courts will deal with the case, since the amounts involved in the litigation are £30,000 and £20,000 respectively. Issues Whether Potluck Builders have to pay Johnson the £20,000, as the latter’s contribution had ensured the completion of the work in time. Whether Potluck Builders have to pay Klara the extra amount of £30,000, which had been demanded by her. Rule of Law Promissory estoppel is a legal doctrine that prevents individuals from breaking a promise, even when there is no consideration (Poole, 2012, p. 145). However, there are two exceptions to the past consideration rule. An act that had been performed could be valid consideration for a subsequent promise, if that act had been done at the behest of the promisor, and the parties had understood at that time that such act was to be compensated. In addition, the promise should have been legally enforceable, if had been made before the act (Poole, 2013, p. 58). Application Johnson – Claimant Potluck – Defendant In our present problem, Johnson’s completion of the work in time helped Potluck Builders in completing their contract within the stipulated time and thereby avoiding penalties from the London Panharmonic Society. Moreover, Johnson had taken up the performance of the work at the request of Potluck Builders. The decision in Williams v Roffey has established the practical benefit test in contract cases. Prior to this ruling, practical benefit was not deemed good consideration. In his comments, Glidewell LJ concentrated on whether the promisor had benefitted. He did not consider the disadvantage that the promisee had to undergo because of his promise (Stone, 2002, p. 91). In Williams v Roffey Bros, the defendants were building contractors. They had entered into a contract to refurbish 27 flats. This contract included a liquidated damages clause if the work was not completed in time. Roffey Bros, subsequently, formed a subsidiary contract with Williams to carry out the carpentry work. The price agreed upon for the carpentry work was £20,000 (Kelly, et al., 2002, p. 128). Thereafter, it became clear that Williams would be unable to complete the work on time, due to financial difficulties. This development exposed Roffey Bros to the penalty clause of their contract. In order to avoid this risk, Roffey Bros offered to pay Williams an additional amount of £575 per flat. After Williams had completed work on eight flats, it became apparent that Roffey Bros would not honour their promise. Hence, Williams discontinued the work and sued Roffey Bros for the additional payment (Kelly, et al., 2002, p. 128). The Court of Appeal held that Roffey Bros had benefitted by paying the additional amount. This was because they had avoided the penalty clause, were not required to hire another entity to complete the work, and had fulfilled their contractual agreement (Kelly, et al., 2002, p. 128). Under these circumstances, the benefits enumerated were deemed adequate consideration for the promise to pay extra money to Williams. Moreover, in Pao On v Lau Yiu Long, an agreement had been reached between these parties, whereby, they consented to exchange shares in their companies. At that time, the plaintiff agreed to abstain from selling 60% of the shares for a year. This deferment was aimed at circumventing any reduction in their value. In exchange, the defendant agreed to protect the plaintiff from any loss ensuing from depreciation in the value of the shares (Poole, 2013, p. 58). These parties entered into a subsidiary agreement, which stated that the plaintiff would sell back to the defendant, 60% of the shares within the year. The price agreed upon per share was HKD2.50. Subsequently, the plaintiff realised that they would undergo substantial loss if the price per share were to rise above HKD2.50. Consequently, the plaintiff asked the defendant to provide an indemnity to buy back the shares if they fell below HKD2.50. The defendant responded by signing the indemnity agreement (Jänig, 2012, p. 4). The task before the court was to decide if there was any consideration for the indemnity. The court held that valid consideration was provided by the promise made by the plaintiff to refrain from selling the shares for a year. This consideration, which had been provided before the indemnity, was provided at the request of the defendant (Jänig, 2012, p. 4). Moreover, it was provided on the understanding that the plaintiff would be protected from losses. By applying the ruling in Re Casey’s Patents, the Privy Council held that an act performed prior to making a promise to make payment or to provide some other benefit could be consideration for the promise. However, such act should have been performed at the request of the promisor. In addition, the concerned parties should have comprehended that remuneration was to be provided for that act by payment or bestowal of some other benefit. Furthermore, the payment or conferment of benefit should have been legally enforceable, if it had been promised in advance (Monahan, 2001, p. 25). As these conditions were evident in this case, the promise of the plaintiff was deemed valid consideration. As per the decision in Pao On v Lau Yiu Long, Johnson’s completion of the work constitutes valid consideration. Moreover, the timely performance of Johnson provided a practical benefit to Potluck Builders, in accordance with the ruling in Williams v Roffey. Therefore, Potluck Builders have to fulfil their part of the agreement with Johnson and pay him £20,000 for completing the work in time. Failure to do so will render Potluck Builders liable for breach of contract under the principle of promissory estoppel. Klara – Claimant Potluck – Defendant In our problem, Klara demanded an extra payment of £30,000 for her unique specialised talent. The timely execution of the work would benefit Potluck Builders, as they would be penalised for failure to meet the deadline. All the same, Klara’s demand for the additional payment can be deemed as economic duress, as Potluck Builders had consented to pay her £70,000 for her expert services. The legal concept of economic duress emerged in England in the 18th century. It has assumed considerable significance in the 20th century (Cserne, 2012, p. 104). Whenever, a subcontractor consents to complete a piece of work at a fixed price, and refuses to complete the same, in the absence of an increase in the payment, then such subcontractor could be rendered guilty of taking an unfair advantage of the difficulties being envisaged by the contractor. Any such agreement to pay an additional amount is void, as the promisor has been subjected to duress (Beale, et al., 2007, p. 112). For example, in South Caribbean Trading v Trafigura, Coleman J stated his considered opinion that the promisee’s threat to desist from discharging an existing duty was equivalent to imposing economic duress upon the promisor. As a result, a threat of non – performance that is not justified prevents the promisee from taking recourse to the defence of a practical benefit accruing to the promisor (Chen – Wishart, 2012, p. 130). Similarly in our problem, Klara had threatened to discontinue the work, unless Potluck Builders paid her the additional amount. Hence, her demand for extra payment is unjustified. Potluck Builders will not be liable under the provisions of promissory estoppel, since the extra amount demanded by Klara amounts to economic duress according to the case law and discussion. Thus, Potluck Builders will not be liable for any claims by Klara, regarding her demand for additional payment. References Beale, H. G., Bishop, W. D. & Furmston, M. P., 2007. Contract. 5 ed. Oxford, UK: Oxford University Press. Cartwright, J., 2006. Protecting Legitimate Expectations and Estoppel in English Law, s.l.: XVII International Congress of Comparitive Law. Central London Property Trust Ltd v High Trees Ltd (1947 ) KB 130. Chen – Wishart, M., 2012. Contract Law. 4 ed. Oxford, UK: Oxford University Press. Cserne, P., 2012. Freedom of Contract and Paternalism: Prospects and Limits of an Economic Approach. Hampshire, UK: Palgrave Macmillan. Hughes v Metropolitan Railway Co (1877) UKHL 1. Jänig, R., 2012. Commercial Law : Selected Essays on the Law of Obligation, Insolvency and Arbitration. Göttingen, Germany: Universitätsverlag Göttingen. Judicial Office, 2013. Civil. [online] Available at: [Accessed 20 July 2013]. Kelly, D., Holmes, A. E. & Hayward, R., 2002. Business Law. 4 ed. London, UK: Cavendish Publishing Limited. Monahan, G., 2001. Contract Law. 2 ed. London, UK: Cavendish Publishing Limited. Pao On v Lau Yiu Long (1980) AC 614 PC. Poole, J., 2012. Textbook on Contract Law. 11 ed. Oxford, UK: Oxford University Press. Poole, J., 2013. Contract Law Concentrate: Law Revision and Study Guide. Oxford, UK: Oxford University Press. Re Caseys Patents: Stewart v Casey (1892) 1 Ch 104. South Caribbean Trading Ltd v Trafigura Beheer BV (2004) EWHC 2676. Stone, R., 2002. The Modern Law of Contract. 5 ed. London, UK: Cavendish Publishing Limited. Stone, R., 2005. Contract Law. 6 ed. London, UK: Cavendish Publishing Limited. Tool Metal Manufacturing v Tungsten (1955) 1 WLR 761. Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991) 1 All ER 512. Read More